Most obviously, the ban failed miserably to stem the declines of
Washington Mutual and
Wachovia (among others). The dismal performance of those
stocks amid the ban showed the folly of CEOs blaming loses on
short sellers, notes Whitney Tilson,
founder and managing partner of T2 Partners and Tilson Mutual
Funds.

Tilson, who
publicly detailed the risks of owning Washington Mutual,
Lehman Brothers and others last spring, said the ban wrongly
seeks to punishes people who correctly warned about the dangers
of many of the most toxic financial companies.

In addition, the ban has unleashed the law of unintended
consequences, such as:

Removing short-covering (i.e., buying of stock) that normally
occurs amid big declines. In other words,
Monday's decline may have been worse because of
the ban.

Driving up the price of put options, which traders are now
using to express bearish bets (and in turn prompting market
makers -- who are exempt from the ban -- to increase their short
positions.)

Hurting the convertible bond market, a $400 billion source of
liquidity for companies that has effectively dried up because of
the ban, as the
WSJ details.